The end of the Great Keynesian Experiment is upon us. Prepare accordingly.

Friday, December 3, 2010

That's a Wrap!

Holy Moly! As expected, gold drifted higher in the Globex (post 1:30) session but then, unexpectedly, shot higher at 3:50. Not coincidentally, silver also shot higher at the exact same time, 3:50 EST, reaching a high of 29.49 before settling back to 29.44. Most likely someone or something decided to cover a big short position for fear of losing more come Monday. After today's action, the charts in both silver and gold are extraordinarily fantastic. You and I are clearly not the only ones who have noticed. A note of caution, however. The first order of business for the EE come Sunday evening will be to attempt to claw back those gains so don't be surprised if gold opens $4-6 lower. Don't get nervous. Next week is going to be great fun.

A currency war solves absolutely nothing whatsoever.
A currency war puts extreme strains on exports.
A currency war never establishes a currency's value versus its trading partners than can be maintained for any meaningful period of time.
A currency war creates currency levels that have nothing to do with reality economically and are unsustainable.
A currency war is endemic to QE in the entire Western world.
A currency war is destructive to all.
A currency war may cause gold to sell off like today in one currency, but it also causes gold to rise in others.
A currency war in time elects gold as the only viable currency.
A currency war is exactly what will give you levels of the gold price forecasted by Armstrong and Alf that are well above what we have looked at for over 8 years.
A currency war is what Merkel declared in her negative speech a few days ago concerning the euro.
A currency was is what the children running our monetary affairs have entered into.
A currency war is akin to children on the playground playing Keep Away.
A currency war's game of Keep Away is to keep away prosperity.

Also from JSM, I feel I must copy and paste today's chart update from Dan Norcini. Dan touches upon many of the themes I've mentioned here this week, including wheat!! I've gotten to know Dan a little bit over the past year or so. Let me just say he is truly a great guy. More experienced and knowledgeable than just about anyone covering the PMs. On your list of favorite websites, be sure to list JSM. I check it several times per day, particularly after the Comex close when I am looking for Dan's daily words of wisdom.

The payrolls number that was released this morning served as the initial catalyst that sent the US Dollar sharply lower and generated a wave of fund-related buying into the commodity complex once again.

It would appear that the market focus of today shifted off of the woes in Europe with its sovereign debt crisis and back onto the abysmal state of the US economy. Same story – no jobs. The market is sending a signal to the clueless Administration and current Congressional makeup (which will be changing next month) that its policies are utterly wrongheaded. They are too wedded to ideology however to take the steps necessary to bring about an improvement. Combine that with what seems an almost hopeless paralysis to deal with the worsening US fiscal condition and the Dollar was taken out to the woodshed where it had the stuffing beaten out of it. Please see the price chart I sent up earlier to detail the breakdown from a technical perspective.

The fact that the US Dollar was knocked lower only after just seeing the Euro getting slammed earlier this week, is underscoring just how awful the health of both fiat currencies has become. Traders were running into the Dollar early this week out of fears concerning the Euro and its long term stability. Today they are running back into the Euro mainly because they are running back out of the Dollar. What a terrible, horrific mess. The monetary authorities have disgraced themselves but that assumes that such people have a functioning conscience. Their problem is that they have the interests of the big banks at heart first and foremost and the long term interests of the nation second if at all. It also does not help matters any that the political leadership refuses to stop spending money that they do not have.

The results are predictable – gold is seeing a huge influx of money from those looking to protect themselves from the monetary authorities of the West. Early this week it made a new all time high in both terms of the Euro and the British Pound and today it came within $15 or so of taking out its lifetime high in US Dollar terms.

I should also note here that crude oil is threatening to breakout to the upside on its daily chart as it set a new yearly high in today’s trading session. If its strength continues and it clears the $90 level, gold is going to take out its all time high in US Dollar terms very easily. I have written about this many times here on the site and remarked about it during radio interviews, but it is a sad fact that if the energy markets break out to the upside, the already hard-pressed middle class is going to get slammed with the double whammy of both rising food prices and rising energy prices. The boys who concoct their doctored CPI numbers will try their magic on convincing us that inflation is tame and that price pressures are subdued but the charts do not lie and they are telling us that disposable income is going to go more and more to securing the essentials of life. Translation – watch for consumer discretionary spending to nosedive as more of the family budget goes to food and energy and wages remain flat or stagnant.

Back to gold – the fact that it was able to push through round number psychological resistance at $1400 on its third try this week is friendly to the bullish cause as it sets up a test above the $1420 level of the all time high. If that gives way, gold then targets $1440.

Silver is in its own world right now and is very strong on the charts but I want to see a good, solid close above $29.50 to set it up for a push towards $30.

The HUI is within striking distance of its recent high near 588. Technically it looks strong on the charts although bulls will need to push it past 590 to negate any bearish divergence signals that are appearing.

Keep an eye on wheat prices as it has been on an upward tear this week and is working on targeting $7.50. It is moving higher on fears concerning the Australian crop now. Wheat is an essential food and its price action dictates to a large extent the price direction in the rest of the grain complex. It has been dragging corn prices higher. Unless we get a huge bumper crop next year of both wheat and corn, I am afraid that the days of relatively cheap grains are behind us and that the world has entered an era in which the grains, and the soybeans for that matter, have now achieved permanently higher near plateau levels. The implications are higher meat and poultry costs for us all.

What a terror these monetary authorities have unleashed upon us all. Keep in mind this all started when they began to bail out their pals at the damn big banks who created the derivative monster to enrich themselves. History will look back at this era and will spare it no amount of harsh criticism for what began the downfall of the global monetary system.

Bonds are experiencing some pre-weekend short covering as bears ring the cash register for what has been a good week for them. Even at that, they are basically flat and not getting much in the way of upside traction. The technical damage to the charts has been extensive with this week’s breakdown so unless bond bulls can take prices back up beyond 129, the path of least resistance looks lower.

That's it for now. I'll try to take some time tomorrow to project the week ahead as well as craft a post that details some of the nicknames and acronyms we like to use around here. Have a great Friday evening. Kick back. Relax and smile. We've got the EE on the run!

23 comments:

From Reuters: "The euro rose to a session peak against the dollar in late afternoon New York trade on Friday after a report on the CBS website that Federal Reserve Chairman Ben Bernanke did not rule out buying more than $600 billion of bonds in further quantitative easing."

I am a small time trader along for the ride here in both metals with you guys. What do you think the odds are that we get whipsawed around and "attacked" again on rumors of a China rate hike? What if China does this in the next couple of weeks, and what kind of down move (even if very temporary) can we expect in POG? Curious as to your thoughts and thank you for this blog. I'm worried about a sharp shakedown due to that could take out some stops.

China has been buying Gold and Silver for months wether official or unofficial,then we have Iran,Iraq,Russia,India and even Bangladesh buying when they can.Plus interesting snapshots such as Gold for Oil stories,,J.P.Morgan being 3.3 Billion Oz,s short on Silver paper.In the short term pm,s will behave erratically as some take profits.What needs to be remembered is that raised margins,bailouts,defaults,QE2,etc, are all symptoms of a broken and non-functioning system of which pm,s are a barometer of general confidence in the system or lack of it.Gold and Silver are still cheap.

Great week, Turd. And thank you, for in times of EE attacks, your words have always calmed me down. I am in Comex Silver, so I do run up against the EE directly. It IS often unnerving, to say the least. It's hard to place stops on Comex Silver as the EE seems to know where exactly we will place them, and try to trigger them before letting it push back higher.

TF...question for you or others on board. (My questions are given in the context of retirement accounts which are not terribly practical for physical possession).What would be the catalyst that leads to a fund like SLV or AGQ (2x silver) diverging dramatically from the silver spot price?

Troy: Never more than a couple at a time. Every time I get greedy, I get my fanny kicked.

This: A general realization that the funds are, as many suspect, fraudulent vehicles that are stocked with worthless, EE-issued paper silver, not the real thing. For peace of mind, check out the new Sprott Physical Silver Trust, instead. You'll pay a premium but, to me, its worth it.

Why is there so much skepticism about the validity of SLV?? In particular, Ted Butler is FIRMLY in favor of it as a valid vehicle. I would think in part this is due to its openness in terms of inventory. Isn't Black Rock the new custodian. Mr. Butler has praised them to his subscribers many times as being much more diligent in forcing the ETF to fulfill its obligations in acquiring silver.

J.P.Morgan purchase £1 Billion of Copper on LME,50 - 80% of Copper reserves held yesterday.So totally in the shit,trying to corner the Copper market to counterbalance ? See the Telegraph website for story.

BIG STORY---------

American investment bank bought up more than half the copper on the London Metal Exchange, pushing the spot price to its highest level since the financial crisis in October 2008.

THEY ARE IN SO MUCH TROUBLE THEY ARE CORNERING THE COPPER MARKET TO TRY AND GET OUT OF IT.

Turd,Thanks for the link. I think you may be conflating the role of JPM as custodian of the ETF with their role shorting silver. I am no expert. But no one can doubt that Ted Butler is. He has been right consistently for almost 30 years re: silver.

To quote Mr. Butler:

"I hear and read the knocks on SLV. I study them closely. I find them all unfounded. Yes, JPMorgan is both the custodian of the SLV and the largest silver short on the COMEX (thanks to my revelations). So what? JPMorgan is a huge company with hundreds of thousands of employees and is involved in a wide variety of businesses. Metal warehousing is one of those businesses. JPM was the custodian of the SLV from its inception, in 2006. That was two years before it became the largest COMEX silver short, via its takeover of Bear Stearns in 2008. There is no way that JPM knew in 2006 that it would be taking over Bear Stearns in 2008. In my opinion, the connection between JPM being the custodian of SLV and the largest COMEX silver short was pure happenstance.

I think the metal claimed to be on deposit in SLV is on deposit. The sponsor, BlackRock, one of the largest money managers in the world, would not list the serial numbers and weights of the individual bars in a fraudulent or misleading manner. They would have too much to lose and nothing to gain. Such false reporting would be so egregious that even a jury of 12 year olds would criminally convict anyone lying about such specific representations. Aside from the shorting of shares issue, I’m convinced the metal claimed to be on deposit in SLV (and other similar investment vehicles) is actually there. That being the case, not only do I believe that the SLV will hold up and perform as intended in a genuine silver physical crunch, I believe it will be one of the “last men standing.’

I think you do a great service to silver investors with your blog. But on this particular point, I think you may be incorrect. I am open to a better explanation than Mr. Butler's.

Cris: I guess you, Ted and I will disagree on this one. If the chart of world silver stock that Jeff supplies is accurate, then it would seem to imply that SLV is a farce. Tough to say for sure. Watch the cartoon on the new post, too.Have a great weekend! TF

I think this blog is just unbelievably constructive bc it allows people who think critically and who are informed to congregate and share ideas. And Turd, in my short exposure to his thinking, has proven to be uncannily accurate and insightful.

That being said, I think on this particular point, there is some flaw to the logic. For instance, to Sumo's analogy, I am not sure it is valid to compare silver custodians to mortgage dealers.

For one, the chain of possession as it were, is much shorter in silver. Bars are deposited, accounted for and tracked. As we saw with mortgages, they are bundled, sold to one entity, bundled again, sold to another entity, divided and or bundles again... well, you get the picture.

For two, there is motive in the mortgage chicanery, as each separate "transaction", from initiation to selling to bundling to selling again, involves fees. These fees at least to me appear to be FAR in excess of the types of fees generated by tracking silver bars in a vault by a custodian.

Call me naive, or call me an amatuer. I am probably both. Which is another reason why I put stock in the opinions of experts -- like Turd, and like Ted Butler. Perhaps the BEST answer is to "diversify", as with everyhting else. I put pre-tax retirement funds into vehicles like SLV, prob I should have some in both SLV AND PSLV.

Next week should be VERY interesting... Turd, I wonder if you have any predictions on what happens when Asia opens at 6PM??

Cris: I would suspect that, for the first order of business tonight, the EE will attempt to claw back the $8 or so that gold rose afterhours on the Globex Friday afternoon. Maybe open 1408-10 or so. From there, I'd expect a nice rally overseas and then the usual EE 7-9 am EST beatdown.

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About Me

"Turd Ferguson" has been involved in the securites "industry" for over 20 years. He first received his NASD licenses in June of 1990. Ultimately disgruntled by the fraud known as "financial planning", he retired to a career as a serial entrepreneur in 2008. The Turd is NOT a soothsayer, a psychic or a witch. After all these years, he simply has a decent handle on the PM "markets". You can reach The Turd by email at tfmetalsreport@gmail.com. If you are polite and not an AGA, he will probably answer you in short order.

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